Greek government bonds downgraded

The dollar gained Tuesday as more worries circulated about eurozone government debt levels, while in the U.S., reports showed big gains in home sales and gradual third-quarter growth.

Associated Press

EW YORK — The dollar gained Tuesday as more worries circulated about eurozone government debt levels, while in the U.S., reports showed big gains in home sales and gradual third-quarter growth.

The 16-nation euro slipped to $1.4254 in late New York trading from $1.4289 late Monday. Earlier in the session the euro traded at $1.4219, its lowest point since Sept. 1.

Meanwhile, the British pound dropped to $1.5967 from $1.6052. It was the pound's first dip below $1.60 since mid-October as the British government said its economy shrank 0.2 percent from July to September. That was better than previous estimates, but still short of economists' expectations of a smaller decline or even growth.

The dollar also rose to 91.79 Japanese yen from 91.15 yen.

On Tuesday, the government said that the economy grew at a 2.2 percent pace in the third quarter, slower than previous estimates. Still, analysts expect the economy to grow by nearly 4 percent in the current quarter.

Meanwhile, the National Association of Realtors said home resales rose to their highest level in nearly three years in November as homebuyers raced to take advantage of a federal tax credit. The credit was set to expire on Nov. 30, but Congress extended it last month until April.

The improving picture of the U.S. economy is causing the dollar to gain in tandem with stocks as the year winds down, breaking its regular trading pattern of more than a year. Since Lehman Brothers collapsed, the dollar had tended to benefit as a "safe haven" buy, as investors took their money out of emerging markets and stocks and bought up the dollar and U.S. Treasurys.

Now investors are hoping that the Federal Reserve raises interest rates in the first half of 2010, sooner than it had expected, as the recovery advances. Higher interest rates, and the expectation of higher rates, can boost a currency as investor transfer funds to where they can earn higher returns.

"The current trend is for a stronger USD," said Michael Woolfolk, senior currency strategist at Bank of New York Mellon, as traders are "now probing the extent of the USD's newfound strength." "USD" is shorthand for the U.S. dollar.

In Europe, however, a third credit-ratings agency downgraded Greece's government bonds. On Tuesday, Moody's Investors Service cut Greece's credit rating from A1 to A2 — although it did say Greece did not face serious risk over its immediate borrowing ability. Moody's is the third ratings service to do so this month. Besides Greece, Ireland, Spain and Portugal also face scrutiny in bond markets.

Investors are concerned that the stronger eurozone countries may have to support heavily indebted European countries, weakening the region's stability, said Jeffrey Rosenberg, credit analyst with BofA Merrill Lynch, in a note to investors. That's hit the euro.

Michael Hewson, a currency analyst with CMC Markets in London, said the slight uptick overnight by the dollar was also helped by U.S. Treasury yields hitting their highest levels since August.

Also helping the dollar are expectations that the U.S. Federal Reserve will start withdrawing its extraordinary liquidity measures and raising interest rates sooner than expected.

In other late trading Tuesday, the dollar slipped to 1.0557 Canadian dollars from 1.0617, but rose to 1.0481 Swiss francs from 1.0457 francs late Monday.